Commission on Accommodation Entries Restricted to 2.5%: ITAT Delhi Upholds CIT(A) Order [Read Order]

The case involved four assessees Vinay Sharma, Dheer Chand Sharma, Guru Prasad Sharma, and Geeta Sharma who were linked to a search operation conducted on 23/08/2012 at the premises of M/s. NKG Group.

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The Assessing Officer (AO) identified that the assessees, operating as entry providers, facilitated accommodation entries for M/s. NKG Infrastructure Ltd. to inflate its purchases. The AO treated the transactions as bogus and made additions under Section 68 of the Income Tax Act, 1961.

During the search, no books of accounts or bills were found at the residential premises of the assessees, indicating no business activity was conducted there. Statements recorded under Section 132(4) from Guru Prasad Sharma and Dheer Chand Sharma, corroborated by a bank manager and a handwriting expert, confirmed that the assessees’ bank accounts were used to receive funds via cheques/RTGS, which were withdrawn in cash or through bearer cheques on the same or next day.

Aggrieved by the AO’s additions, the assessees appealed to the CIT(A), who modified the AO’s order. The CIT(A) directed the AO to restrict the addition to a 2.5% commission on the total accommodation entries provided to M/s. NKG Infrastructure Ltd., deleting other additions related to credit/debit entries under Section 68, as the transactions were verifiable and the funds were returned to M/s. NKG Infrastructure Ltd.

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Both the Revenue and the lead assessee Vinay Sharma, appealed to the ITAT. The assessee argued that the 2.5% commission constituted an enhancement under Section 251(1)(a) of the Act, which was legally unsustainable, citing precedents like CIT vs. Shapoorji Pallonji Mistry (1962). Alternatively, the assessee contended that the commission rate should not exceed 0.15% to 0.5%, based on judicial precedents.

The two-member bench, comprising Shri Satbeer Singh Godara (Judicial Member) and S. Rifaur Rahman (Accountant Member), observed that the CIT(A)’s action of restricting the addition to 2.5% did not amount to an enhancement or a new head of income.

The bench noted that the CIT(A) merely modified the AO’s disallowance of the entire credit and debit entries, assessing only the commission element, which was consistent with the nature of accommodation entries.

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The bench found the 2.5% rate reasonable, given the facts of the case, including the scale of transactions and the lack of evidence to support a lower commission. It concluded that the 2.5% commission was appropriately applied to the accommodation entries provided to M/s. NKG Infrastructure Ltd.

The appeals filed by the Revenue and the cross-objections by the assessees were partly allowed.

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